Posted 1 year, 1 month ago at 4:56 pm. 0 comments
For many people the key to Forex trading is the ability to trade on the margin. Without this ability, many small investors would not be able to trade the currency markets. But just what is trading on the margin and how does it work?
A margin account allows a Forex trader to open an account with a relatively small amount of money, and to then control large amounts of currency. In effect, opening a margin account with a Forex broker allows you to borrow money from the broker to control large currency lots. The degree to which you can borrow is known as leverage and is usually expressed as a ratio. For example, a leverage of 100:1 means that you can control assets worth 100 times your deposit.
By opening a 1% margin account and depositing just US $1,000 you can control standard Forex and lots of US $100,000. The ability to trade on the margin can clearly increase your profits, but it can also increase your losses with the possibility that you could lose more than your original deposit. Brokers, however, normally monitor margin accounts closely and will terminate a transaction which extends beyond the margin deposit.
While it is obvious that being able to trade US $100,000 with as little as US $1,000 provides for the possibility of both greater profit and greater loss, we need to look in a little more detail at just how this works.
Forex currencies are traded in much smaller lots than cash is. If we take the American dollar for example, a Forex quote might read $1.3256, rather than the $1.32 which you might expect. This is because in Forex trading currencies are traded in units down to four decimal places, with the smallest unit in Forex currency being known as the pip. In a standard US $100,000 lot therefore each pip is worth US $10.
If our example quote for the American dollar of $1 .3256 were to change to $1.3356 this would represent a change of 100 pips and a profit or loss of US $1000 and, if you were holding US $1000 of currency, a profit or loss of just US $10. This might be significant to a tourist but is unlikely to impress an investor. However, by using your US $1,000 on a 1% margin account to control US $100,000, your US $1,000 profit now looks far more healthy.
Of course your risks are also increased and, if the American dollar moves by just one cent against you on your 1% margin account, you stand to lose your entire account.
Fortunately there are a number of tools available to the Forex trader to help in minimizing any potential losses. One such tool is the stop loss order which automatically closes your position if the value of the currency reaches a level which you set.
One price that Forex traders have to pay for operating a margin account is that brokers normally have the right to override a transaction when they believe that it may result in an unacceptable loss. It may be the case therefore that, while you are riding out a downturn in the market in the expectation of a market reversal, your broker may close out your position and leave you with a substantial loss.
Let’s say for example that you sell EUR/USD at 1.2144 (in other words sell €100,000 and a buy US $121,440) in the belief that the euro will fall in price. Your 1% margin account has a balance of $1, 250 and so after the transaction costing $1, 214.40 the balance in your account is $35.60.
After you have entered this position, and assuming that you have not set a stop loss, let’s say that the euro gains 0.0263 for a price of 1.2407 making €100,000 worth US $124,070. The requirement on your 1% margin account is now $1, 240.70 and, depending on your broker’s policy, the additional funds may be taken from your account or, with such a low balance, your position may be closed. In any event, if the euro continues to gain in value, you will need to add further funds to your account or risk your account being closed and losing everything.
Despite the risks of trading on a margin account it is this ability which makes Forex trading such an attractive proposition to so many people. You should not therefore be put off by these risks, but you certainly need to be aware of them and to know your broker’s policy and to manage your account accordingly.
LearningForexTradingOnline.com is the ideal place to currency trading and provides information on a range of topics including such questions as how does day trading work
Posted 1 year, 1 month ago at 6:24 am. 0 comments
Forex trading has become extremely popular in recent years. Many newcomers to the stock market enjoy Forex trading because it’s a simple way to earn profits without monitoring hundreds of company stocks. Forex trading (a.k.a. currency trading) is easy to learn, less risky for short-term profits, and can be very lucrative for those who invest wisely. Fortunately, there’s online Forex trading to make things even easier. Outlined below are five profitable reasons to take advantage of currency trading online.
1. A Liquid Market
Online Forex trading offers you a liquid market in which you are in control at all times. Though no profits are guaranteed, you can buy or sell at will with the simple click of the mouse. This prevents getting stuck with a particular trade. You can set the online Forex trading platform to close at a pre-determined profit level automatically, or even to close a trade if the odds are going against you.
2. Forex Margin Leverage
You can leverage your money with Forex trading through a margin account deposit. Your deposit might be small when compared to many stock investments, but you can still enjoy amazing profits through leverage. Unlike the stock market, some Forex brokers will offer as much as a 200:1 leverage. This means you can invest $1,000 of your own money to create a margin of $200,000! Margin calls are used by brokers to keep risks to a minimum for you and the broker.
3. Profits for Rising or Falling Currencies
With currency trading online, you can earn profits in both a rising and falling currency market. When currency pairs are up or down, you can still make big profits depending on the position you take. The “long” position means you are buying the pair at one price and selling it at a higher price later. The “short” position means you are selling the currency pair and buying it back at a lower price. The key to success in Forex trading online is to make the right picks either way.
4. Around-the-Clock Trading
One thing you’ll love about the Forex market is it never sleeps during its open times. You can trade in Forex 24/7, from Sunday evening to Friday afternoon. This enables you to trade at night (2nd or 3rd shift) and still work a full-time job during the day. You can also trade on a part-time basis, and you’re always in control of when you trade!
5. Plenty of Forex Training for Beginners
Another great thing about online Forex trading is you can learn from experienced Forex traders and brokers through online demos, newsletters, e-books, and numerous online resources. These trading tools are available free or at very low cost and can help you learn all you need to know to get started. As a beginner, you can take advantage of free currency trading demo accounts to practice trading before actually making a trade. These are absolutely risk-free because you’re not trading with real money yet.
Online Forex trading offers these benefits and many others. With so many useful Forex resources online, you can start trading with a very small investment and quickly work your way up to tremendous profits!
Chris Robertson is an author of Majon International, one of the worlds MOST popular internet marketing companies on the web.
Learn more about 5 Forex Trading Benefits.
Posted 1 year, 2 months ago at 7:10 am. 0 comments
titleLearning to Trade Forex - A Simple Guide!/titlepDont jump in the deep end by putting $1,000 down and then thinking you are going to double it within the year without doing much work! That doesnt happen. The most likely outcome of such enthusiasm is usually burn out with the person losing the initial trading deposit./ppAs a start you should familiarize yourself with the terminology that traders use - for example what are pips? What is a margin trading account? What is technical analysis? What is a Trading Platform? These are basic elements that you should know plus many more things!!/ppbVisit Forums/b/ppIf you feel that forex is for you visit forex forums, ask questions, try and get a feel for the market and the temperament of traders. Try and sort out who the real traders are from the ego trippers./ppbOpen a Practice Account!/b/ppWhen you feel that you are starting to get at least a basic knowledge then look for a company (usually a brokerage company) that supplies a trading platform and a practice account./ppIf you havent traded before and you are a complete newbie to this business (yes -treat it like a business) learn as much as you can by doing./ppOnce you have got to the practice trading scenario, try and replicate what it feels like to both gain and lose money - put some money aside and add and take away appropriately according to your results on that day./ppOne of the first lessons you should be learning is never never over-stretch your finances./ppbDont over-margin your account!/b/ppWhen learning to trade forex you will need at some stage to start trading for real on a margin account but dont leverage $1,000 up to $100,000 your broker may cut your position to limit any exposure their company may have if your position goes against you - so only utilize 15-20 times at first - gain confidence and with confidence knowledge and skill expand your leverage./ppTo find out more about what it takes to be a profitable forex trader join my a target=_new href=http://www.forex4traders.comFree Weekly Newsletter/a which is filled with tips advice, guides and product reviews. Join a target=_new href=http://www.forex4traders.comForex4Traders.com/a here./ppPeter Burke MBA has been writing Journals and Articles for academic publications for over 7 years and is Managing Director of a Consulting Company in the United Kingdom./pbrbr
Posted 1 year, 2 months ago at 4:34 pm. 0 comments
While being a day trader used to be a personal decision that the government had no interest in, the Security and Exchange Commission (SEC) recently stepped in and developed some day trader account management rules that you may become subject to depending upon how you trade.
There is a new category of day trader called the “Pattern Day Trader” or “PDT”. This definition applies to people who make four or more day trades within any five day period, but only if those trades exceed six percent of that person’s total trading activity in the same time period.
What is a Day Trader?
A day trader is an investor who opens and closes a position in the same trading day. For example, if you buy 10,000 shares of XYZ at 11 AM, and sell all 10,000 shares at 1:30 PM on the same day, then you completed a day trade. Do that enough times within 5 days and you are a Pattern Day Trader.
What are the new SEC rules?
If you are determined to be a PDT then you are required to maintain a minimum balance of $25,000 in your margin account. Traders who are not subject to the new rules only need to maintain a $2,000 balance in their margin account.
Because the SEC rules are not clear, many brokerage houses require PDT customers to maintain a $25,000 balance even if they are trading from a cash account.
Is Day Trading right for you?
Day trading is not something to be entered into lightly. While there is a great opportunity for gain, there is an equal opportunity for loss. Day traders require a great degree of knowledge and skill in order to be consistently successful. Of course, no one is born with that knowledge and skill and there are plenty of ways to learn all about day trading if you think that you are interested.
It takes discipline to be a day trader. Greed and fear are the two biggest enemies of day trading investors. When you get too greedy you set yourself up for losses by having too much money invested at once, or by not exiting a trade when you should. Fear stops you from making a trade because you don’t want to risk losing the money, or it forces you to close a position earlier than you should because you think it’s going bad on you.
Day trading is very risky and you should never invest more than you can afford to lose. Yes, you can earn a full time living being a day trader, but more people fail than succeed, so you have to be prepared for the worst.
Your best bet is to find a day trading program or strategy that you are comfortable with and then stick with it. There are plenty of strategies available, but remember this: Past performance is never indicative of future results. What worked yesterday for day traders may not work today. Trade responsibly!
Caterina Christakos is an experience investor and internet entrepreneur. To learn how to diversify your portfolio go to: http://www.commoditiesandfuturesexplained.com
Posted 1 year, 2 months ago at 6:08 am. 0 comments
To get started with Forex trading, you must obtain a margin account. You’ll sign up with either a Forex broker or a regular broker to open a margin account. A margin account in currency trading works similar to an equities margin account used in the regular stock market.
A Forex margin account requires a money deposit to get started. The amount deposited will be based on an agreement between you and the broker. When trading in 100,000 currency units or more, the percentage deposited in your margin account will usually be either one or two percent. In other words, if you (as a Forex trader) want to invest $100,000, having a one percent margin means you would need to deposit $1,000 into your margin account. The broker provides the remaining amount, and the $1,000 deposited by you is used to secure the account.
The broker doesn’t charge interest on the borrowed margin amount unless you fail to close your position before the delivery date. If the amount has to be rolled over, interest may be charged depending on the short-term interest rates of the underlying currencies as well as your position (long or short).
Margin Calls
If you invest $1,000 in a margin account and your broker feels you are near losing the $1,000 because of a worsened position, the broker can initiate a margin call. A margin call means you will need to deposit more money into your margin account or close out your position to reduce risks for both you and your broker.
Daily Forex Trading
Forex trading can be worked daily, and profits and losses are tallied on a daily basis as well. When you open a margin account, you are actually making a commitment to trade that day and take positions. If you opt as a “speculator” trader only, you will not actually take delivery on your trading product. If you are a stock day trader, you will hold a position for only a few minutes up to a few hours and then close your position by the end of the session.
If you gain profits through Forex trading, the profits are placed into your margin account on the same day. When you lose, however, the losses are taken from your margin account that same day. All Forex trading accounts are settled on a daily basis.
Forex Margin Benefits
Whether you plan to participate in Forex trading with a local broker or Forex trading online, you’ll soon realize how beneficial margin accounts can be. A Forex margin account gives you remarkable leverage by depositing just a small amount of your own money. It gives you the ability to earn more profits and keep your risk to a minimum. A margin account secures your ability to be a big spender in a very lucrative market. Margins can, however, tempt you to go over your invested amount and risk a big loss, so be careful.
With currency trading online, you can easily monitor your margin account around the clock. Always be responsible with your Forex decisions. Online Forex trading can also bring many temptations to overspend, so you’ll want to enter the market slowly and learn all you can from the start. Check out online Forex trading resources today to get going with profitable currency investments.
Chris Robertson is an author of Majon International, one of the worlds MOST popular internet marketing companies on the web. Learn more about Forex Trading and Margin Accounts.